Sunbeam 2010 Annual Report Download - page 11

Management’s Discussion and Analysis
Jarden Corporation Annual Report 2010
Mapa Spontex’s leading international position in gloves and sponges and provides the Company with a complete product line in
conventional cleaning supplies to offer our retailers both domestically and internationally. Quickie is reported in the Company’s
Branded Consumables segment and is included in the Company’s results of operations from December 17, 2010. The combined
cash purchase price, net of cash acquired, for the Aero and Quickie acquisitions was approximately $270 million, subject to certain
adjustments. Additionally, during 2010, the Company completed another tuck-in acquisition. All three tuck-in acquisitions were
complementary to the Company’s core businesses and from an accounting standpoint were not significant.
2009 Activity
During 2009, the Company completed three tuck-in acquisitions that by nature are complementary to the Company’s core
businesses and from an accounting standpoint were not significant.
2008 Activity
The Company did not complete any acquisitions during 2008.
Venezuela Operations
On January 8, 2010, the Venezuelan government announced its intention to devalue its currency (Bolivar) relative to the U.S. dollar.
The official exchange rate for imported goods classified as essential, such as food and medicine, changed from 2.15 to 2.60 Bolivars
per U.S. dollar, while payments for other non-essential goods moved to an official exchange rate of 4.30 Bolivars per U.S. dollar. As
such, beginning in 2010, the financial statements of the Company’s subsidiaries operating in Venezuela are remeasured at and are
reflected in the Company’s consolidated financial statements at the official exchange rate of 4.30 Bolivars per U.S. dollar, which is
the Company’s expected settlement rate.
As a result of the change in the official exchange rate to 4.30 Bolivars per U.S. dollar, the Company recorded a non-cash pre-tax
loss of $14.0 million in 2010, primarily reflecting the write-down of monetary assets as of January 1, 2010. This charge is classified in
selling, general and administrative costs (“SG&A”).
In March 2010, the Securities and Exchange Commission (the “SEC”) provided guidance on certain exchange rate issues specific to
Venezuela. This SEC guidance, in part, requires that any differences between the amounts reported for financial reporting purposes
and actual U.S. dollar denominated balances that may have existed prior to the application of the highly inflationary accounting
requirements (effective January 1, 2010 for the Company) should be recognized in the income statement. As a result of applying this
SEC guidance, the results of operations for 2010 include a non-cash charge of $56.6 million related to remeasuring $32.0 million of
U.S. dollar denominated assets at the parallel exchange rate and subsequently translating at the official exchange rate. This charge
is classified in SG&A. At December 31, 2009, and prior to the application of the accounting guidance for operating in a highly
inflationary economy, the $56.6 million was deferred and recorded in other assets. This SEC guidance was codified by the Financial
Accounting Standards Board (the “FASB”) in May 2010, with the issuance of Accounting Standards Update (“ASU”) 2010-19.
The transfers of funds out of Venezuela are subject to restrictions, and historically payments for certain imported goods and
services have been required to be transacted by exchanging Bolivars for U.S. dollars through securities transactions in the more
unfavorable parallel market rather than at the more favorable official exchange rate. During the third quarter of 2010, the parallel
market was discontinued and replaced with the newly created and government regulated System of Transactions in Foreign
Currency Denominated Securities (“SITME”) market. Historically, the majority of the Company’s purchases have qualified for the
official exchange rate. As such, the Company has been able to convert Bolivars at the official exchange rate and, based upon this
ability, the Company does not expect further changes in the SITME market to have a material impact on the consolidated financial
position, results of operations or cash flows of the Company. While the timing of government approval for settlement of payables
at the official rate varies, the Company believes these payables will ultimately be approved and settled at the official exchange rate
based on past experience. However, if in the future, further restrictions require the Company’s subsidiaries operating in Venezuela to
convert an increasing amount of the Bolivar cash balances into U.S. dollars using the more unfavorable exchange rate, it could result
in currency exchange losses that may be material to the Company’s results of operations. At December 31, 2010, the Company’s
subsidiaries operating in Venezuela have approximately $17 million in cash denominated in U.S. dollars and cash of approximately
$36 million held in Bolivars converted at the official exchange rate of 4.30 Bolivars per U.S. dollar.
Effective January 1, 2010, the Company’s subsidiaries operating in Venezuela are considered under GAAP to be operating in a
highly inflationary economy based on the use of the blended National Consumer Price Index (a blend of the National Consumer
Price Index subsequent to January 1, 2008 and the Consumer Price Index for Caracas and Maracaibo prior to January 1, 2008),
as the Venezuela economy exceeded the three year cumulative inflation rate of 100%. The Company’s financial statements of its
subsidiaries operating in Venezuela are remeasured as if their functional currency were the U.S. dollar. As such, gains and losses
resulting from the remeasurement of monetary assets and liabilities are reflected in current earnings.
While the likelihood or amount of a future devaluation in Venezuela is unknown, for illustrative purposes if the Company translated
the results of operations for the Venezuela subsidiaries for 2010 assuming an additional 50% devaluation versus using the actual
official exchange rate of 4.30 in effect during that period, the Company’s consolidated net sales for 2010 would have been reduced
by less than 1%.
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